Friday, January 09, 2009

LET'S DITCH THE EURO! The Telegraph is spot on:
As historians begin to assess damage from the credit crunch, Spain will surely be singled out as a classic study for what can go wrong inside a monetary union when the policy requirements of its members become hopelessly misaligned. It is simply not possible to pursue the best interests of every participant when some nations are running trade and fiscal surpluses while others clock up huge deficits.

Ten years after it was launched, the euro is propelling Spain towards disaster. In giving up control of domestic interest rates to the European Central Bank, Madrid handed over a vital instrument of macroeconomic management. It is learning to regret that.

For the early part of this millennium, that loss of power seemed not to matter: Spain's outrageous (and in some cases illegal) construction frenzy hid a multitude of sins. At the peak, about 800,000 homes were being built annually on the basis that demand from foreign buyers was limitless.

That dream has vanished, along with the over-supply of cheap money that funded it. Drive down the E-15, the main motorway link between Malaga and Gibraltar, and you will see block after block of half-built apartments, connected neither to essential utilities nor to financial reality. They stand as temples to a religion that ceased to exist when the bubble popped.

The Spanish economy is weak; it needs lower interest rates and a softer currency. Such a prospect, however, doesn't suit Germany, the eurozone's dominant force, so Madrid has to sit and suffer while its people cry for help.
UPDATE. Tenerife News has a harsh -and mostly right- take on Zapatero:
Perhaps the Christmas break will have helped the President of Spain’s Government to regain his normal equanimity. In the weeks leading up to December 24, Mr. Zapatero appeared un peu distrait at conferences within his own party (the PSOE), or in televised performances on TV/PSOE (a.k.a. Radio Televisión Española). If he allowed his eyes to leave the script prepared by his several hundred asesores, there were long silences between his not always coherent sentences, as if he was trying to remember what Pepe Blanco had suggested he should say.